Downgrade to Underperform. Correspondingly, our fair value is lowered to RM0.74/share based on 10x CY11 EPS. While we believe JCY stands to benefit from the consolidation within the industry which could result in less ASP pressures in addition to mitigating oversupply, we are cautious on JCY’s earnings visibility as it resolves its operational issues. Therefore, due to the limited upside to the share price, we downgrade our call to Underperform (from market perform).

Anyway, I will repaste the following section the 1 March 2011 posting:

Compare the recent earnings of JCY and then compare it with RHB's estimates.

Let's see.....

End Nov 2010, JCY reported a net loss of 22 million for its fy 2004 Q4 earnings.

On Friday, JCY said it made a net profit of 7.512 million for its fy 2011 Q1. Yes, a net profit of only 7.512 million.

And assuming ( I know.. I will make an ass of u and me! :P ) an annualised earnings estimate, at best we can assume that JCY will make 7.5 x 4, which works to a mere 30 million.

Now RHB's estimate earnings is 44 million. Which is much better than using an annualised estimate.

So is RHB's estimate a bit harsh?

Yes? Or maybe fair?

If it's fair... then based on a 10x earnings multiple, 22 sen is not too harsh is it?

we believe the outlook for the industry is waning as there could still be excess HDD inventory due to the persistent weaker-than-expected demand for desktop PCs and netbooks compounded by the rising demand for alternative storage (i.e. solid state drives (SSD).

Weaker demand for desktop? Is that true? How many are buying a desktop nowadays? And what about laptops too? Are the price of the new laptops getting cheaper?

Or how about the external HDD market? The prices are falling like crazy yes? And if the prices are getting cheaper, how much can these HDD makers make?

And the USD vs RM issue.

Does the USD look like getting some strength against the RM anytime soon?

And then you have raising raw material cost.

How are all these reasonings given by RHB Research? Are they too conservative?

And if the answer is no... what if RHB's projection is true?

And let's stretch it a bit more.... say RHB estimate is off. Let's say it's off by 100 percent! :)

Which means, let's assume JCY makes 88 million instead of 44 million. Now JCY has 2044 million shares. Based on earnings of 88 million, this would equate to an eps of around 4 sen only. An eps of 4 sen. How much do you think it's fair value?

That's the key question, how much do you think it's fair value?

Today JCY reported its quarterly earnings. Yes, on a q-q basis, quarterly earnings showed tremendous improvement. Remember that JCY said it made a net profit of 7.512 million for its fy 2011 Q1. Today JCY said it made a net profit of 12.458 million ( this is a quick look and I did not look into any details), which is a great improvement.

But.... 12.458 million... just isn't enough.

This meant that current first half earnings from JCY is only a 'paltry' 19.970 million and with a share base of 2044 million shares, it equates to an eps of only 0.98 sen only!!!

Well it looks like RHB's initial earnings estimate of 44 million for JCY is pretty spot on for now!